Strategic Oil & Gas loses $718,000 in Q3 2012

2012-11-21 06:41 ET - News Release


Mr. Gurpreet Sawhney reports


Strategic Oil & Gas Ltd. has released its unaudited interim financial statements, and related management's discussion and analysis for the quarter ended Sept. 30, 2012. Selected financial and operational information is outlined below and should be read in conjunction with Strategic's unaudited interim financial statements and the related MD&A, which are available for review on the company's website and on SEDAR.

                    FINANCIAL AND OPERATIONAL HIGHLIGHTS                                                                             Three months ended   Nine months ended                                                Sept. 30,           Sept. 30,                                         2012      2011      2012      2011 Financial ($000s, except per share                                         amounts)                                                                   Petroleum and natural gas sales       $12,520   $ 5,200   $40,649   $15,246 Funds from (used in) operations (1)     4,349     1,011    16,443       (79)Per share basic                       $  0.02   $  0.01   $  0.09   $     - Per share diluted                        0.02      0.01      0.09         -                                       --------  --------  --------  --------Net income (loss)                        (718)   (1,395)  $ 1,129   $(8,453)                                      ========  ========  ========  ========Per share basic                       $ (0.00)  $ (0.01)  $  0.01   $ (0.06)Per share diluted                       (0.00)    (0.01)     0.01     (0.06)Operating                                                                   Production                                                                  Crude oil (bbl per day)                 1,734       595     1,791       564 Natural gas (mcf per day)               1,178     1,916     1,537     1,799 Barrels of oil equivalent (boe per                                        day)                                    1,930       914     2,047       863 Average realized price                                                      Crude oil ($ per bbl)                 $ 76.84   $ 82.42   $ 80.92   $ 86.40 Natural gas ($ per mcf)               $  2.45   $  3.91   $  2.21   $  3.98 Barrels of oil equivalent ($ per                                          boe) (2)                              $ 70.52   $ 61.83   $ 72.46   $ 64.69 Netback per boe ($)                                                         Petroleum and natural gas sales       $ 70.52   $ 61.83   $ 72.46   $ 64.69 Royalties                              (10.69)    (8.77)   (10.96)   (14.08)Operating expenses                     (19.51)   (23.46)   (20.41)   (33.33)Transportation expenses                 (3.19)    (2.25)    (2.99)    (2.08)                                      --------  --------  --------  --------Operating netback ($ per boe)         $ 37.13   $ 27.35   $ 38.10   $ 15.20                                       --------  --------  --------  --------Notes:(1) Management uses funds from operation to analyze operating performance and leverage. These terms, as presented, do not have any standardized meaning prescribed by international financial reporting standards and   therefore may not be comparable with the calculation of similar measures for other entities.                                                     (2) Boe means barrel of oil equivalent. All boe conversions in this report  are derived by converting natural gas to oil equivalent at a ratio of 6,000 cubic feet of natural gas to one barrel of oil equivalent. Boe may be misleading, particularly if used in isolation. The conversion rate is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.


  • Production was 1,930 barrels of oil equivalent per day which is a 111-per-cent increase from the third quarter of 2011 despite service interruptions associated with forest fires, restrictions on Pembina's Peace pipeline and a plant turnaround. Disruptions in service equated to approximately 17 days of downtime.
  • Oil and natural gas liquid production increased 191 per cent to 1,734 barrels of oil equivalent per day, compared with 595 barrels of oil equivalent per day in the third quarter of 2011.
  • Oil and natural gas liquids production was 90 per cent of total production in the third quarter of 2012 compared with 65 per cent in the comparable period of 2011.
  • Third-quarter combined oil and natural gas sales were $12.52-million with cash flow from operations of $4,349,000 (two cents per basic share) a 141-per-cent and 330-per-cent increase from the comparable period in 2011, respectively.
  • The field netback was $37.13 per barrel of oil equivalent, a 36-per-cent increase from the comparable period in 2011.
  • Eleven of the 13 wells drilled during the nine months ended Sept. 30, 2012, were tied in and on production. The remaining two will be on production in the fourth quarter of 2012. A minimum of four additional wells are planned for the last quarter of 2012.
  • Total capital expenditures invested for the nine months ended Sept. 30, 2012, $47,144,000 representing 79 per cent of its budgeted annual capital program focusing on drilling and infrastructure activities compared with $33,382,000 in a comparable period.
  • Effective Sept. 24, 2012, the corporation's current line of credit was increased to $48.5-million, ahead of the Oct. 31, 2012, review date.

Operational overview

In July, forest fires forced the shut-in of production at the Larne field and at Steen River. Further, Pembina Pipeline Corp. initiated maintenance and upgrades commencing mid-August, 2012, which resulted in disruption in service and reduced pipeline capacity. The above unplanned disruptions and the scheduled plant turnaround at Strategic's Steen River facilities resulted in total disruptions in service that equated to 17 days in downtime. Routine production operations were conducted at the producing Taber and Conrad properties.

Corporate production averaged 1,930 barrels of oil equivalent per day in the third quarter of 2012 as compared with 2,583 barrels of oil equivalent per day in the second quarter of 2012. The reduction in the production is mainly attributed to the downtime at Steen River and shut-in gas production at Larne. Corporate production decline is estimated at 160 barrels of oil equivalent per day for the third quarter which equates to an annualized decline of approximately 25 per cent.

Strategic continued the development of light oil opportunities at its Steen River core area. Strategic has drilled and completed 13 wells with a 100-per-cent success rate using two drilling rigs in 2012. Drilling operations resumed in August, 2012, at Steen River with two dedicated rigs. In the third-quarter four vertical wells were drilled. The 100/02-27 Sulphur Point vertical well is producing 40 barrels of oil equivalent per day and 102/03-27 Keg River vertical well is producing 260 barrels of oil equivalent per day. The remaining two vertical wells drilled in the third quarter will be on production in November.


At Steen River, continued success from the 2012 drilling programs continues to provide follow-up drilling locations. Strategic will drill four additional wells in the fourth quarter of 2012. The corporation plans to drill a minimum of 10 wells in first quarter 2013. The 2013 drilling program is planned to extend and to explore the Keg River and Sulphur Point across the Steen astrobleem from North Marlowe to West Marlowe testing several structural features. Additional work in the first quarter 2013 includes 3-D seismic and infrastructure to expand Steen's production gathering access.

Plans for further activity are proceeding at Maxhamish. Strategic continues to work with its operating partner, in contemplation of additional evaluation and stimulation activity in the first quarter of 2013. At Amber, the corporation continues its evaluation of several opportunities. The corporation has deferred its Amber program to 2013.

The corporation is on track with securing transporting oil by rail in fourth quarter 2012. Rail will help to minimize production downtime due to pipeline disruptions and will also provide an upside to pricing from exposure to WTI and Brent bench marks.

"With three new wells coming on production in November, the corporation is on target to meet our 2012 exit rate guidance of 3,000 barrels of oil equivalent per day," said Gurpreet Sawhney, president and chief executive officer of the corporation.